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Regulatory framework

Key policies

What are the principal governmental and regulatory policies that govern the banking sector?

German banking law lays down rules for banks and financial service providers that need to be observed during their establishment and when they are carrying out their business. These rules are essential for the supervisory authorities to counteract undesirable developments in the banking sector that may endanger the security of the assets entrusted to institutions or impair the proper conduct of banking business. The proper functioning of the banking sector can be seen as the primary objective of banking supervision.

Banking supervision is risk-oriented (ie, it depends on the risks incurred). In this context, supervisors examine whether institutions have adequate capital and liquidity and whether they have established appropriate risk control mechanisms.

Primary and secondary legislation

Summarise the primary statutes and regulations that govern the banking industry.

The principal regulations governing the German banking sector are:

  • the key provisions of German banking supervisory law are laid down in the German Banking Act (KWG) and the Capital Requirements Regulation (Regulation (EU) No. 575/2013 (CRR). The KWG sets out the requirements and duties that have to be fulfilled by credit institutions and financial services institutions;
  • the Payment Services Regulation Act covers the supervision of payment services and implements the European Payment Services Directive into German law;
  • the Capital Investment Code covers the provision of investment services and implements the Undertakings for Collective Investment in Transferable Securities Directive 2014/91/EU as well as the Alternative Investment Fund Managers Directive 2011/61/EU;
  • money-laundering prevention is subject to the Money Laundering Act; and
  • the provision of services relating to securities and financial instruments is subject to the Securities Trading Act (WpHG), which is implementing large parts of the Markets in Financial Instruments Directive 2014/65/EU (MiFID II).

These laws are accompanied by ancillary laws and regulations, most of which deal with details of specific regulatory aspects. For example, certain details on capital requirements are set out in the Solvability Regulation (SolvVO), and details on liquidity requirements in the Liquidity Regulation. Detailed provisions on loans totalling €1 million or more are set out in the Regulation on Large Scale Exposures. In addition to laws and regulations, the Federal Financial Supervisory Authority (BaFin) and Deutsche Bundesbank have published numerous circulars, explanatory notes and decisions regarding certain aspects of regulatory law. These circulars, explanatory notes and decisions are binding for the issuing authorities. In contrast, they are not binding for the European Central Bank (ECB), which is only bound by EU law and German statutory law transforming EU law.

Regulatory authorities

Which regulatory authorities are primarily responsible for overseeing banks?

German banks are supervised by the Single Supervisory Mechanism of the ECB or BaFin, or both, and by the Deutsche Bundesbank. The responsibility of either the ECB or BaFin depends on the allocation of competencies set out in Regulation (EU) No. 1024/2013 (SSM Regulation). Pursuant to article 6, paragraph 4 of the SSM Regulation, the ECB is competent for the supervision of all German credit institutions with respect to the licensing and withdrawal of licences as well as for the assessment of notifications of the acquisition and disposal of qualifying holdings in such credit institutions. Additionally, the ECB is competent for all aspects of the supervision of credit institutions that are deemed to be ‘significant’, which is the case in any of the following categories:

  • a credit institution has a total value of assets of more than €30 billion;
  • the total assets exceed €5 billion and the ratio of the total assets to German gross domestic product exceeds 20 per cent;
  • BaFin and the ECB mutually decide that a credit institution shall be deemed to be significant;
  • the ECB unilaterally decides that a credit institution that has a bank subsidiary in Germany and in another EU member state and whose cross-border assets or liabilities represent a significant part of its total assets or liabilities, shall be deemed to be significant; or
  • a credit institution has requested or received financial assistance directly from the European Financial Stability Facility or the European Stability Mechanism.

In contrast, BaFin remains responsible for the supervision of all remaining credit institutions and financial services firms, that is, entities that only qualify as credit institutions under German law, but not under the CRR (eg, banks that only engage in lending business and are not licensed to accept deposits from their customers). Further, BaFin is responsible for the supervision of all credit institutions within the meaning of the CRR that are not deemed to be significant in accordance with the five categories listed above, whereby the ECB is in any event competent for the licensing and withdrawal of licences as well as for ownership control decisions regarding CRR credit institutions (see question 2). Moreover, BaFin remains the responsible authority for dealing with anti-money laundering law and the supervision of payment services providers and asset managers.

In addition to the direct supervision of credit institutions by the ECB or by BaFin, the Deutsche Bundesbank is responsible for receiving and analysing data submitted by banks and financial services firms. The ECB, BaFin and the Deutsche Bundesbank cooperate closely and share observations and findings that are necessary for the performance of their respective tasks. In their internal relationship, the final decision about whether supervisory measures are taken or how to construe the law is taken by the ECB or BaFin.

BaFin has offices in Bonn and in Frankfurt. The office responsible for supervising most parts of the banking sector is located in Bonn. BaFin’s superior authority is the German Federal Ministry of Finance.

The Deutsche Bundesbank is based in Frankfurt am Main. Its supervisory functions are carried out mainly through its eight regional offices, which are located in Berlin, Düsseldorf, Frankfurt am Main, Hamburg, Hannover, Leipzig, Munich and Stuttgart. The ECB has its seat in Frankfurt am Main.

Government deposit insurance

Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.

Owing to the implementation of the Directive on Deposit Guarantee Schemes (Directive 2014/49/EU) in 2015, the existing legal framework for deposit protection has recently been subject to change. Pursuant to the new Deposit Guarantee Act (EinSiG), all CRR credit institutions are required to become a member of a deposit guarantee scheme (DGS). Additionally, branches of credit institutions with head offices in other EU member states are also obliged to do so. The DGSs are financed by contributions made by their members. The obligation of each member institution is based on the amount of covered deposits and the individual risk profile.

In the event of loss of deposits, the EinSiG provides depositors with a statutory compensation claim of up to €100,000 per depositor and bank. Under the new legal regime, eligibility is open to private depositors and most companies alike. Further, certain privileged depositors are protected by up to €500,000 per depositor and bank.

The event of loss of deposits will be determined by BaFin, if the credit institution concerned appears to be unable to repay the deposit owing to its financial situation and the institution has no prospect of being able to do so. Within seven days after the determination, the depositors shall be automatically compensated by the DGS. For this reason, the credit institutions are required to be able to provide all relevant information, such as the current amount of the individual deposits, at any given time.

Apart from the statutory protection scheme, deposits of customers are often also protected by voluntary deposit protection schemes. Many private banks in Germany participate in the Association of German Banks’ (BdB) Deposit Protection Fund (DPF). The DPF is a voluntary scheme aimed at protecting deposits of banks’ customers beyond the protection level provided under the statutory deposit protection scheme. The DPF is held and administered by the BdB and is funded by contributions from all participating banks. In order to avoid the DPF requiring an insurance licence, bank clients do not have an enforceable claim against the DPF. The payments made by the DPF with respect to the customers of a failed bank are voluntary. However, the DPF is not known to have ever refused payments on the grounds of the voluntary nature of the protection scheme. The DPF’s statutes require that any controlling (direct or indirect) shareholder of the participating bank has to issue an indemnity declaration to the DPF and, thereby, indirectly assume liability for the bank’s deposits.

Further deposit protection schemes exist for the cooperative and public banking sector in Germany.

Transactions between affiliates

Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.

Pursuant to section 13c of the KWG, a CRR credit institution that is a subsidiary of a mixed-activity holding company must notify BaFin and the Deutsche Bundesbank of significant intra-group transactions with the mixed-activity holding company or their other subsidiaries. The CRR credit institution may conduct these transactions only on the basis of a unanimous decision by all the managing directors.

Moreover, the KWG provides for certain restrictions regarding institutional loans, eg loans to managing directors or partners of the institution who are not managing directors (section 15 of the KWG). Such loans may be granted only by virtue of a unanimous decision by all the managing directors of the institution and only in prevailing markets’ terms and only with the explicit approval of the supervisory board.

Regulatory challenges

What are the principal regulatory challenges facing the banking industry?

Germany is a member state of the European Union and as such is subject to EU legislation regarding financial supervisory law. Therefore, Germany is required to transpose EU regulations into German law. Owing to the implementation of the Markets in Financial Instruments Directive (MiFID II) and the Market in Financial Instruments Regulation (MiFIR), the Market Abuse Directive (MAD II) and Market Abuse Regulation (MAR), and the Payment Services Directive (PSD II) and further laws, in the past years, many existing German laws were subject to significant changes (inter alia WpHG and KWG). This flood of regulations, inter alia, is accompanied by increasing requirements that the institutions need to observe or modify. Moreover, there are also new legislative proposals. In November 2016, the EU Commission published a legislative proposal for amendments to the CRR and CRD IV, as well as to the BRRD and SRMR. In summer 2018, the European Council and the European Parliament published their views on the EU Commission’s proposals and the inter-institutional trialogue negotiations have started. Such negotiations are well advanced and was expected that the final version of the revised EU law would be published at the beginning of 2019. This new EU legislation will require significant changes in German supervisory laws. In addition, every year, EU supervisory authorities publish numerous guidelines, reports and opinions that must be implemented in Germany.

Consumer protection

Are banks subject to consumer protection rules?

In Germany, banks are subject to extensive consumer protection rules, which are widely based on European law. For instance, in the case of loan agreements, the consumer protection rules oblige the bank to provide detailed information to the customers at the time the agreement is entered into and during the contractual relationship. Further, the consumer protection rules give customers specific revocation and termination rights with respect to the loan agreement. Therefore, German consumer protection rules significantly restrict the contents of loan agreements that are granted to retail customers.

BaFin is only responsible for the collective protection of consumers. In doing so, BaFin supervises the financial institutions by monitoring the stability of these institutions and looking into irregularities at the supervised entities. The representation of individual consumers lies within the responsibility of ombudsman services, dispute resolution entities and consumer organisations. If they are unable to resolve a conflict in individual cases, it can only be settled by a court.

Future changes

In what ways do you anticipate the legal and regulatory policy changing over the next few years?

The EU Commission published a legislative proposal for amendments to the CRR and CRD IV, as well the BRRD and SRMR in November 2016 (see question 6). The proposal aims to eliminate certain weaknesses identified in the current banking regulation system while taking into account the role banks have for the economy. It includes measures agreed within the Basel Committee on Banking Supervision and the Financial Stability Board.

Among the propositions is a binding leverage ratio of 3 per cent for all institutions that fall within the scope of the CRD, with adjustments being possible under specific circumstances. A requirement for a stable funding based on the ratio of an institution’s stable funding to the required stable funding over a one-year period (net stable funding ratio) is introduced in order to prevent institutions from relying on excessive amounts of short-term wholesale funding to finance long-term activities. This requirement would become effective from two years after the proposed regulation has entered into force. The rules for calculating the capital requirements for market risk, which are applicable to trading book positions, would be amended in order to reflect more accurately the actual risk to which banks are exposed. However, to allow for a more proportionate solution, there would be derogations for banks with small trading books and a simplified standardised approach for medium-sized banks (applicable two years after the entry into force of the legal framework). It is further proposed that the Commission’s implementing power will be replaced by a delegated power, enabling the EU Commission to exempt entities from the CRD where certain conditions are fulfilled and to decide about whether such institutions fall within the scope of the CRD or CRR again, once these criteria are no longer fulfilled.

In order to improve the effectiveness of resolution and to protect public funds, global systemically important institutions would be required to hold sufficient amounts of capital and other instruments that absorb losses in the case of a resolution (total loss-absorbing capacity). Moreover, the proposal provides for an EU-harmonised approach to a bank creditor’s insolvency ranking. To this end, a new statutory category of unsecured debt that ranks just below the most senior debt and other senior liabilities would be introduced. The legislative proposal also includes a moratorium tool enabling the suspension of certain contractual obligations for a short period of time. Several proposed changes are intended to enhance proportionality (eg, small institutions would be subject to less frequent and less extensive reporting and disclosure requirements).

The Brexit referendum result of June 2016 could have potentially significant implications for the financial sector in Germany. As it stands, it cannot be excluded that EU-UK negotiations result in a no-deal Brexit. This means that the UK would leave the European single market. Supervised credit institutions and financial services firms located in the UK must be prepared for the possibility that they will no longer be able to conduct regulated business in other EU or European Economic Area (EEA) member states from the UK in future. Specifically, such institutions may, post-Brexit, no longer be able to rely on the European passport regime that enables them to conduct business on a cross-border basis without any other local licences. If they wish to continue conducting such business, they need to consider relocating out of the UK to another EU or EEA member state. The German Federal Ministry of Finance published a draft bill at the end of 2018 that would enable BaFin to allow credit institutions and financial services firms from the UK to continue their business activities in Germany to a certain extent for a transitional period of up to 21 months in the case of a no-deal Brexit. This would create legal certainty and make it possible to continue conducting some regulated activities in Germany until a German branch or subsidiary of the UK entity has obtained a regulatory licence in Germany.

Supervision

Extent of oversight

How are banks supervised by their regulatory authorities? How often do these examinations occur and how extensive are they?

BaFin and the ECB, where applicable, exercise supervision over their respective assigned institutions on an ongoing basis. As part of their statutory mandate, they may issue orders that are appropriate and necessary to prevent or remedy violations of regulatory provisions. They assess the rules, strategies, procedures and processes that have been established by the institutions in order to comply with the regulatory framework. Particular attention is paid to an institution’s liquidity and funds, and whether effective risk management and stable risk coverage are in place. In addition, regulatory authorities may carry out supervisory stress tests on an institution.

The frequency and intensity of these reviews, assessments and stress tests depends on the size and systemic relevance as well as the type, volume and complexity of the transactions of an institution.

Enforcement

How do the regulatory authorities enforce banking laws and regulations?

There is an extensive catalogue of supervisory measures that can be taken by supervisory authorities (ECB, BaFin or Deutsche Bundesbank) in Germany. The measures are set out in the specific legislation.

Most available measures are preventative in nature and may include the request of information, the submission of documents and the ordering of (ad hoc) audits.

However, if an undertaking is conducting unauthorised business, BaFin can prohibit the continuation of such business and order the liquidation of the existing business. BaFin can also conduct inspections if there are strong suspicions that such unauthorised business is taking place.

Regulatory authorities may also impose administrative fines that are aimed at warning parties to comply with their statutory obligations. They can issue warnings against managers and demand their dismissal if such managers do not have the adequate professional qualifications or are considered to be unreliable.

What are the most common enforcement issues and how have they been addressed by the regulators and the banks?

As indicated in BaFin’s annual report of 2017, BaFin ordered 199 special audits pursuant to section 44, paragraph 1, sentence 2 of the KWG during the past financial year. Of the total number of these special audits, 15 were impairment-related special audits and 166 concerned section 25a, paragraph 1 of the KWG (risk management).

Resolution

Government takeovers

In what circumstances may banks be taken over by the government or regulatory authorities? How frequent is this in practice? How are the interests of the various stakeholders treated?

The German Federal Agency for Financial Market Stabilisation (FMSA) was integrated into BaFin as an independently operating unit at the beginning of 2018. This reduced the uncertainties arising from the previous cooperation of BaFin and the FMSA. However, it remains to be seen how this institutional change will affect the processes and ‘culture’ of the resolution authority.

In the course of implementing the BRRD and aligning with the Single Resolution Mechanism Regulation (Regulation (EU) No. 806/2014), a new legal framework for recovery and resolution of banks was established. Under the new resolution regime, the Recovery and Resolution Act (SAG), the Single Resolution Board (SRB) is competent for resolution decisions regarding CRR credit institutions under the supervision of the ECB. BaFin is competent for such decisions regarding other credit institutions and act on the basis of the SAG. Further, BaFin is competent for the conduct of the resolution measures regardless of who took the underlying resolution decision.

Under the SAG, BaFin can take various resolution measures regarding CRR credit institutions that are not supervised by the ECB in certain circumstances. Resolution requires a threat to the existence of the affected credit institution. Further, at least one resolution purpose, in particular the protection of the credit institution’s customers, must be pursued by way of resolution. It is also required that the respective purpose cannot be fulfilled by a regular insolvency proceeding to the same extent. In addition, it is necessary that the threat to the existence of the credit institution cannot be removed by alternative measures, including measures by private deposit protection systems.

The German Act on the Adjustment of the National Law on the Resolution of Institutions to the Single Supervisory Mechanism and the European Provisions for the Bank Levy, which entered into force on 1 January 2016, significantly extended the scope of application of banking resolution law. While the law previously required that the resolution aim at preventing a systemic threat or avoiding the use of public funds, it now suffices that the resolution serves the purpose of protecting certain depositors or financial assets of other customers. Consequently, resolution may become a relevant topic for small and medium-sized institutions as well.

If the requirements set out above are met, BaFin can order adequate measures for resolution in principle. In particular, the BaFin can make use of the bail-in tool, which provides for the possibility of making certain claims against the affected credit institution valueless. The involvement of the owners of relevant capital instruments tool enables BaFin to transform relevant capital instruments into shares in the credit institution. The sale-of-business tool provides for the possibility of transferring shares in the affected credit institution or its assets to a private purchaser. The purpose of the sale-of-business tool is to achieve a separation of parts of the financial institution to make continuation of the financial institution’s business possible. This also applies to the bridge institution tool, which is closely linked to the sale tool since it can be used in preparation for a future sale of the credit institution’s business. Further, it is possible to transfer assets of the credit institution to an asset management company.

Bank failures

What is the role of the bank’s management and directors in the case of a bank failure? Must banks have a resolution plan or similar document?

If an institution becomes insolvent or over-indebted, the managing directors shall report this and submit informative documentation to BaFin without undue delay.

Under the SAG, institutions are required to prepare a recovery plan (see question 15).

Are managers or directors personally liable in the case of a bank failure?

The liability of managers or directors depends on their damaging behaviour and the general rules of German corporate law. For instance, pursuant to the Limited Liabilities Companies Act, a director may be liable to the company for breaches of his due care. Further, regulatory authorities could take the view that a director is not sufficiently trustworthy owing to the bank failure.

Planning exercises

Describe any resolution planning or similar exercises that banks are required to conduct.

The SAG transposes the European Recovery and Resolution Directive into German law (see question 12). The SAG now provides detailed provisions regarding the recovery and resolution of banks.

Pursuant to section 12 of the SAG, institutions are obliged to prepare a recovery plan once the supervisory authority has asked them to do so. The time limit for the preparation of the recovery plans may not exceed six months. However, an institution may apply for an extension of up to six months. In the recovery plans, the institutions have to explain the measures that will ensure or restore the financial stability in case of a crisis. The SAG provides for a very detailed description of the content of these plans. The intention of such recovery plans is to give an institution a tool for handling a crisis by its own efforts. In doing so, the resolution of institutions right from the outset can be avoided. BaFin will intensively assess the institutions’ recovery plans and encourage their improvement. If BaFin comes to the conclusion that the recovery plan does not meet the requirements of the SAG, it can notify the institution about its assessment and request a revised recovery plan. Moreover, BaFin and the Deutsche Bundesbank may stipulate simplified requirements for the content of the recovery plan, the time limit for its preparation and the frequency of updates.

Capital requirements

Capital adequacy

Describe the legal and regulatory capital adequacy requirements for banks. Must banks make contingent capital arrangements?

As a EU member state, Germany is subject to the CRD IV and CRR under which it had to implement the Basel III framework into German law. Basel III was implemented and has been in force since January 2014. The capital requirements are set out in section 10 of the KWG in connection with article 25 et seq of the CRR and SolvVO. Section 10 of the KWG provides that banks, bank groups and financial holding companies must have adequate funds in order to meet their obligations towards their creditors, and in particular, to safeguard the assets entrusted to them. In addition to the common equity tier 1 capital, the KWG requires institutions to have a capital conservation buffer and an institution-specific countercyclical capital buffer, both consisting of common equity tier 1 capital. Moreover, the ECB or BaFin may order institutions to have a capital buffer for systemic risks. The details regarding the calculation of risks and own funds are set out in the CRR and SolvVO.

How are the capital adequacy guidelines enforced?

The enforcement of the capital adequacy guidelines falls within the supervisory mandate of the supervisory authorities. This means that BaFin, and/or the ECB, can take measures to improve the institution’s own funds and liquidity (see question 18). Furthermore, in cases of danger (eg, if the discharge of an institution’s obligations to its creditors is endangered, the regulatory authorities can take temporary measures to avert the danger). In particular, the authorities may issue instructions for the management of the institution’s business or prohibit the acceptance of deposits or funds or securities from customers and the granting of loans.

Undercapitalisation

What happens in the event that a bank becomes undercapitalised?

If the authorities have any reason to presume that an institution will not be able to comply with the CRR provisions regarding capital adequacy, it may order the institution to take measures to improve its own funds and liquidity. In particular, the authorities may order:

  • the preparation of a substantiated presentation on the development of the institution’s material business activities;
  • an examination of the measures for better protection from risks identified by the institution as being material or measures for reduction of such risks and corresponding risk concentrations;
  • a report on measures suitable to increase the tier 1 capital, own funds and/or liquidity of the institution; or
  • the presentation of a plan to avoid a potentially dangerous situation.

In addition, the regulatory authorities can also appoint a special commissioner and delegate to the special commissioner the exercise of duties and powers of a managing director or the monitoring of compliance with orders issued by the regulatory authorities.

Insolvency

What are the legal and regulatory processes in the event that a bank becomes insolvent?

If an institution becomes insolvent or over-indebted, the managing directors shall report this fact and submit explanatory documentation to BaFin without undue delay (section 46b of the KWG). The application for the initiation of insolvency proceedings over the institution’s assets may only be filed by BaFin. The creditors must be notified by the insolvency court once the decision on the institution of proceedings has been rendered.

The rules on the insolvency procedure are governed by the German Insolvency Code, whereby some specifications must be taken into account that are included in the KWG.

Recent and future changes

Have capital adequacy guidelines changed, or are they expected to change in the near future?

The Commission’s legislative proposal includes substantial amendments to the CRD IV and CRR (see question 8).

Ownership restrictions and implications

Controlling interest

Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank. What constitutes ‘control’ for this purpose?

A controlling interest in a bank is given if the party holds a direct or indirect participation of 10 per cent or more of the shares or voting rights in an institution or can exercise significant influence over the management of the institution.

Foreign ownership

Are there any restrictions on foreign ownership of banks?

There are no general restrictions.

Implications and responsibilities

What are the legal and regulatory implications for entities that control banks?

Many private banks in Germany participate in the BdB’s DPF. The DPF is a voluntary scheme aimed at protecting deposits of banks’ customers beyond the protection level provided under the statutory deposit protection scheme. The DPF is held and administered by the BdB and is financed by contributions from all participating banks. The DPF’s statutes require that any controlling (direct or indirect) shareholder of the participating bank has to issue an indemnity declaration to the DPF and, thereby, indirectly assume liability for the bank’s deposits.

What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?

Entities and individuals that hold a qualifying holding in a bank are subject to comprehensive notification requirements. For example, the holder of a qualifying holding must notify the supervisory authorities in writing of every newly appointed legal or statutory representative or new general partner, as well as the facts essential to assessing their trustworthiness. Moreover, such holders have to notify the supervisory authorities of their intention to increase or decrease the amount of the qualifying holding when certain thresholds are met.

What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?

The insolvency of a bank does not entail a direct payment obligation of the controlling entity or individual. However, if the affected bank participates in the DPF, the controlling shareholders might be liable towards the DPF on the basis of its indemnity declaration (see question 23).

Changes in control

Required approvals

Describe the regulatory approvals needed to acquire control of a bank. How is ‘control’ defined for this purpose?

German law requires any person intending to acquire a qualifying holding in an institution to notify BaFin and Deutsche Bundesbank without undue delay of its intention. A ‘qualifying holding’ means a direct or indirect holding in an undertaking that represents 10 per cent or more of the capital or of the voting rights or which makes it possible to exercise significant influence over the management of that undertaking.

If the notification relates to a participation in a credit institution within the meaning of the CRR, BaFin itself does not decide on the intended acquisition but instead prepares a draft decision and submits this draft to the ECB, which is responsible for taking the final decision. In order to implement standardised procedures for cooperation with the ECB and other national regulators involved in cross-border transactions, a central unit within BaFin was set up.

Foreign acquirers

Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?

In our experience, the regulatory authorities do not make any distinction between German or foreign acquirers.

Besides the regulatory ownership control procedure, it can be necessary under the German Foreign Trade Regulation to file an application for approval with the Federal Ministry for Economic Affairs and Energy (BMWi), if an investor from a non-EU member state intends to acquire directly or indirectly 10 per cent of the voting rights in an institution that engages in critical infrastructures such as payment systems, cash supply, insurance business or settlement and clearing of securities. In other cases, it is possible to ask for the BMWi’s approval on a voluntary basis. The BMWi can object transactions or impose certain restrictions, if there is a threat to public policy or public security. However, in our experience the BMWi is usually very investor-friendly and the procedures are normally completed within a short period of time.

Factors considered by authorities

What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank?

Under certain circumstances, BaFin or the ECB may object to the intended acquisition of a qualifying holding. This includes, for example:

  • the assumption that the acquirer or any of its managing directors is not trustworthy;
  • the expectation that the institution will not remain able to meet the requirements of supervision; or
  • the assessment that a future managing director of the German-regulated entity is not reliable or qualified.

Filing requirements

Describe the required filings for an acquisition of control of a bank.

Together with the notification, the interested acquirer has to provide a substantial package of information to BaFin laid down in the German Ownership Control Regulation (InhKontrollV) respectively and European laws (such as the Delegated Regulation (EU) No. 2017/1946 of the EU Commission with respect to securities trading firms) regarding not only itself, but also other entities of its group of companies. The following documents and statements shall be attached, inter alia, to the notification:

  • general documents such as proof of identity of the notifying party and a description of the business activities of the notifying party;
  • statements and documents regarding the reliability of the notifying party;
  • information regarding the participation held by, and in, the notifying party;
  • a detailed description of the financial and other interests of the acquirer;
  • a description of the financial position and credit worthiness of the notifying party; and
  • a business plan including a description of the strategic objectives and plans.

Timeframe for approval

What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?

After receipt of the full notification, the regulatory authorities have a statutory assessment period of 60 business days in which to decide to prohibit the acquisition or not. The assessment period begins at the date of confirmation of completeness by BaFin. In our experience, BaFin usually raises several queries prior to confirming completeness. The assessment period can be extended to up to 90 business days in principle. However, it can also be possible to agree on a shorter timeline, in particular where there are considerable business reasons for shortening the assessment period.